Seed Investment Criteria
We have taken some time to outline our ideal seed investment criteria. While we are not restricted to invest in only companies that meet these criteria, the more criteria that a startup meets, the higher the likelihood of our interest in the investment.
Investment Related Criteria
- Startup is looking for “Smart Money” and can benefit not only from capital investment, but advising, guidance, marketing help and more.
- $10,000-$100,000 in seed funding
- Reasonable business valuation (equity investments)
- Mutually agreeable convertible notes (debt financing)
Market Related Criteria
- The entrepreneur(s) have chosen a fertile Niche Market to target (choosing one of our areas of interest is a plus!)
- Market is large enough to generate the desired target revenue, return or exit relative to the investment
- If market is not large enough, the entrepreneur has a clear path to expand to adjacent markets (Bowling Pin Strategy)
- There is a void in the market that is unfulfilled
- If no clear void exists, the team has an innovative approach that can save members of the market time & money, or add meaningful value in some other way.
- The entrepreneurs have taken the time to understand and assess direct and indirect competitors
- The team’s growth plan and sequencing to grab market share makes sense
- The product or service has been validated by the market either through a beta product with initial customers, or through an experiment (mock ups or prototype shared with potential customers with positive feedback received)
Customer / Marketing Criteria
- Clear target customer is identified
- The type of customer is intimately understood.
- The customer has a true need and receives meaningful value or relief from obtaining the product or service.
- Customer has ability and authority to buy (Purchasing power and authority)
- Customer can be reached (Marketing and sales plan is clear)
- Decision making and purchasing process is clear and understood (Conversion Process)
- If the venture has multiple potential customers then each customer segment is prioritized.
- Venture can ideally benefit from network theory (viral organic growth / network effect) to increase awareness and sales
- Decision makers, or highly visible influencers, can provide effective leverage to reach many customers or prospects
- Customers are “sticky” – the business has high retention rates.
Business Model Criteria
- Re-occurring revenue (ideal)
- Ability to upsell add-on offerings, upgrades or related products to customers
- High barriers to entry for competitors
- High switching costs for customers (lock in business model)
- Clear Cost per Customer Acquisition (CPA) or plan to measure
- LTV (Life Time Value) is significantly larger than CPA
- Economically viable and scalable model
- Product has a distinct and “marketable” advantage over competing products and/or alternatives (indirect competitors)
- If the product has not established a meaningful advantage over competing products – the product has a clear plan to gain a marketable and distinct advantage.
- If the product is a software venture – the software should be focused enough to serve a niche market well, but not rigid to prevent the product from adapting to market issues or business objectives that arise.
- Product does not win in the marketplace on price alone (Not commodity product or service
- High profit margins
Team / Entrepreneur Criteria
- The leadership team has sound judgment, justifiable experience and integrity
- The entrepreneur is passionate, committed, focused and driven
- Entrepreneur is able to adapt to change gracefully
- The entrepreneur knows when to “explore” and when to “exploit” and can adapt his team accordingly
- The leadership has a strong ability to collaborate and work with others
- The leadership is willing to listen and understand the perspective and suggestions of others
- The entrepreneur(s) is/are not overly confident – willing to seek out advice from wise counsel when needed (Coachable)
- The entrepreneur or team has deep knowledge of the market and/or customer
- The team or entrepreneur has the ability to manage operations, people and finances
- The leadership understands financial statements & tools like cashflow, budgets and the balance sheet.
- The team has a qualified product engineer or specialist
Operations and Company Criteria
- No partner or investor issues that could be difficult to resolve (“dead equity”)
- No significant looming lawsuits
- There is an operational agreement in place that outlines owner (member) responsibilities and protects against unfair equity allocations.
- No substantial company debt, unless it is income producing or strategic debt.
- Scalable operational systems are in place or planned that can accommodate future customer growth.
Current Status & Existing Performance Criteria
Before choosing to invest or determining a valuation, the current status of each perspective venture should be understood. Various areas of the business should be assessed including:
- Company legal status and structure
- Current product status – Just a plan? MVP (Minimum viable product), beta, product used in market already, etc.
- Existing customer satisfaction and/or commitments
- Existing team & planned potential hires
- Current operational efficiency
- Brand and related assets – Does the brand match the key prospect? Review website, collateral, social media, etc.
- Sales and marketing efforts, performance and plans
- Current financial status and position (Balance sheet review)
Current profitability (cash flow and income statement review)
If you have a venture, or venture idea that meets these criteria, We want to hear from you. contact us today.